Show Hide image

What happens when the money runs out?

Banks need the confidence of the public to survive and they have lost it for years to come. The dang

We are witnessing the collapse of the world financial system. To have said that even a month ago would have been to invite ridicule, but now it seems only a statement of the obvious as banks implode, governments panic and investors run. The initial liquidity crisis that broke in August 2007 and drove Northern Rock to the wall has evolved into a crisis of insolvency and finally into a crisis of confidence in the entire financial system.

The British government has been forced into an incremental nationalisation of the banking system, initially with Northern Rock, then Bradford and Bingley, and this week through the £50bn scheme to take equity stakes in leading British banks. But it is a race against time. Last week we started to see something that has never happened before in Britain, even in wartime: a generalised run on the banks. Mostly, this has been by computer - often within the banking system itself - rather than by orderly queues of depositors outside branches - but the result is much the same. The banks' capital reserves evaporate, leaving them insolvent. It is happening throughout Europe and has caused panic in governments. The very integrity of the European Union is under threat as member states resort to disordered and unco-ordinated acts of economic nationalism.

For most of us this chaos has appeared as if from nowhere. This is because financial institutions, regulators, analysts - with a few honourable exceptions like the New York economist Nouriel Roubini - have systematically underplayed the crisis over the past 12 months. When Alistair Darling warned of the severity of the crisis in an interview, he was castigated. We have been told that it is about a few sub-prime mortgages in the United States, that "the worst is over", that liquidity injections are working, when they clearly are not. This is as much a European crash as a Wall Street one and the stock markets of the world are now caught up in the financial psychodrama.

Public alarm is heightened by the incomprehensible language: "securitisation", "deleveraging", "structured investment vehicles" and "credit default swaps". Yet, behind the complexity and obfuscation, the essence of the crisis is simple: the banks have lent as if there were no tomorrow, and now tomorrow has arrived. Behind the fancy formulas lies the brutal truth: that financial institutions which loaned out 30, 40, 50 times their core capital now find themselves at the wrong end of their own leverage and are themselves being levered out of existence. They were not too big to fail after all.

Now they will have to be recapitalised - in other words real money will have to be injected into the banks to make them solvent so that they can lend again. This cannot now come from sovereign wealth funds, shareholders or loans from other financial institutions. It will have to come from the state - ultimately from the bank of you and me. It will require the government to buy large stakes in the banks or to nationalise them outright. This is an outcome governments desperately wished to avoid, but they are rapidly running out of alternatives.

Even though the United States has thrown $700bn at the Wall Street banks, stock markets have collapsed and bank lending remains frozen. Ireland has placed the entire collective wealth of its people at the disposal of its delinquent banks by guaranteeing all bank deposits. Germany righteously condemned beggar-my-neighbour Ireland, and then did the same, while insisting it had not. Denmark, Austria and Greece have followed suit. Bankrupt Iceland has called on trade unions to repatriate pension funds to throw into the black hole that used to be the economy.

As queues form outside London bullion dealers, we are seeing a breakdown of public trust in the banking system, and public trust is the one thing banks need to survive. Banking depends on a kind of benign confidence trick. They make their profits by lending out money they do not actually have - it is called fractional reserve banking. At any one time, a bank will have loans that far exceed its deposits. But the trick only works under certain conditions: if depositors can be persuaded not to withdraw their funds at the same time; if the banks are honest about their reserves; and if the assets they hold retain their value. At present, none of these conditions is being satisfied.

There is worse to come. The next stage will be corporate collapse as companies find they can't roll over loans from banks hoarding whatever cash they still have. Small companies are already having to pay penal interest rates. We may soon see global giants such as AT&T, Ford, General Motors go under. In Britain, companies that depended on the housing bubble are the first to feel the pressure - MFI, B&Q, estate agents. Then it will be high-end retailers, with chains such as John Lewis and Marks & Spencer under pressure, and then other high-street names financed by Icelandic banks. The shake-out in the financial sector will lead to further substantial job losses.

House prices, which have already plummeted, may now sink into the abyss as homes simply become unsaleable. In the worst case, if no one can get a mortgage, a house becomes worth only what people can afford to pay in cash. All those people who felt so secure in their bricks and mortar are about to find that their asset is in fact a liability swallowing money they don't have.

Globally, we are seeing increasing state involvement. Ireland has in effect merged the state with the banks, as has Iceland. In America, the Federal Reserve and Wall Street tried to stage a kind of financial coup, in the original Paulson plan, which would have allowed the treasury secretary to spend public money without political or judicial oversight. Public anger was intense. The danger is that governments, faced with popular resentment at such attempts to resolve the crisis, find themselves resorting to undemocratic means of managing dissent. Phlegmatic Britain doesn't do civil unrest. But we know from what happened in Europe in the 1930s that systemic financial crisis can lead rapidly to the growth of political extremism.

We may be about to discover just how dangerous it was to allow all those CCTV cameras to be put up on every street corner; to arm the police and turn them into a kind of civil army; to extend detention without trial. With luck, our democratic institutions will remain a bulwark against such authoritarianism, but this will require vigilance. This is a pivotal moment.

Governments have no alternative now but to take over and recapitalise the banks. This will mean huge losses to shareholders, but they are losing already. The state is now at the heart of the financial system. We are at the end of the delusion that an economy can be built on debt. It is payback time. Unfortunately we are all liable.

This article first appeared in the 13 October 2008 issue of the New Statesman, The facade cracks

Show Hide image

The Okay Place: the psychological value of mediocre TV

Why do we watch comedies that don’t make us laugh?

I’ve been watching Brooklyn 99 on the train. The comedy cop show makes me laugh roughly once an episode, but nonetheless I watch it compulsively. I watch it on my commute, and I watch it while cooking dinner. It’s in the background when I’m paying my bills. I consumed so many episodes last night, Netflix sent me its most notoriously judgemental pop-up: “Are you still watching?”

Yes, Netflix, I was still watching. The real question was: why?

Brooklyn 99 doesn’t really make me laugh, and it’s far from the most critically-acclaimed show available on the streaming service right now. It’s not technically mediocre – the sitcom has won two Golden Globes – but it is to me*. It provokes the same feelings in me as Netflix’s The Good Place, a kitsch sitcom set in the afterlife. I am compelled to watch at all costs, but on the whole unamused and occasionally frustrated by formulaic storylines. (Sometimes, The Good Place even makes me cringe.)

I enjoy both shows, sure, but I don’t love them. So why am I wasting my time?

(*Because this is the internet, it's a good time to specify that "mediocre" here means in the view of the person being quoted, not objectively.)

“To understand why people are drawn to certain shows, it’s helpful to look at the type of feelings the shows elicit,” says Elizabeth Cohen, a media psychologist and assistant professor at West Virginia University. Cohen says media often has a “mood management function”, in that we use it to make ourselves feel better.

“Sometimes we are looking to be emotionally stimulated, so we might choose to watch something that we think will thrill us,” she says. “But other times we might decide to forego the dark cerebral drama on our DVR and opt for a safe sitcom instead. That could be because we need something that will help us wind down, relax, and boost our mood.”

Photo: Netflix

A desire to unwind is one of the reasons Oliver Savory, a 30-year-old grad student from London, watches The Big Bang Theory, a comedy that has inspired much ire.

“It fills a niche of something to watch while eating, when you can’t focus fully, or you’ve just got in and want to unwind without thinking too hard,” he explains. Oliver says “average” TV comforts him more than “good” TV because he doesn’t have to worry about keeping up to date. “Good TV you have to make time for, average TV can fit around your own schedule without imposing itself.”

Cohen says this is referred to as “comfort food TV”, the entertainment equivalent of eating boxed mac and cheese even if you have the recipe for mum’s spaghetti. “These are shows that people watch not because they are exceptional in quality, but because they are simple, predictable, or nostalgic.”

Sometimes, we watch “okay” shows because we feel they have the potential to be great. Karen Dill-Shackleford is a media psychologist who explains this was her experience with The Good Place.

“I love The Good Place, but there was a stretch when I thought it was poor,” she says. “I kept waiting for it to right itself because I thought it had real potential.”

The potential many of us see in the show is its fresh premise, and its engagement with moral philosophy. As Dill-Shackleford puts it: “[the show] is a palatable way to ponder life’s biggest questions. So, even if the jokes are lame, the potential for real value is still there.”

Charlotte Mullin, a 23-year-old illustrator, says she doesn't laugh at the jokes either. “But what keeps me watching is the premise, and the characters. I’m a sucker for good character development, and The Good Place has it in spades,” she says. (Cohen tells me she does laugh at The Good Place, once again illustrating that mediocrity is in the eye of the beholder.)

Photo: Netflix

Ross McCafferty is a 27-year-old journalist from Glasgow who couldn’t tell you anything about NBC’s Parks and Recreation, even though he’s seen every episode. During a difficult time at work, he consumed the entire show.

“It’s actually quite a derivative, even mediocre show,” he says. “But I still ate it up, because at the time it was oddly comforting to me, self-contained and uncomplicated and unobtrusive, like so little in my life at that time.”

The reasons McCafferty liked the show, he says, is because it was “nice”, “brightly lit”, “nonthreatening” and “so sweet it was cloying”.

Bright lights and pretty colours certainly feel like one of the reasons I keep going back to mediocre sitcoms, but I also find comfort in certain characters: Chidi in The Good Place and Boyle in Brooklyn 99 are comfortingly familiar – I almost switch on to keep up to date with them, as if they were friends.

George Clarke is a 25-year-old management consultant who finds similar comfort in Seinfeld characters, even though the show doesn’t make him laugh much. “Some days I might fancy Netflix’s latest psychological thriller, but most of the time I’d just prefer to sit and watch Kramer doing something ridiculous or George stuff it up with the girl of his dreams for the fourth time that season,” he says.

But couldn’t Clarke and I find our televisual buds in prestige dramas?

“I find the idea of watching prestige shows non-stop to be exhausting,”  says David Renshaw, a 30-year-old news editor, who jokes it can feel like you “need a map” to keep up with Game of Thrones. When he finishes watching something acclaimed, such as Breaking Bad, he “cleanses the palette” with shows like Masterchef or Gogglebox. “They are much lower maintenance… especially if you’re switching between TV and phone as often as I do.”

Photo: Netflix

The comfort of the mediocre is so powerful that it can often override other emotions, such as the cringing I experience during some of The Good Place’s more strained jokes. Lizzie Roberts is a 25-year-old masters student who enjoys Gilmore Girls even though she dislikes the character Lorelai’s “painfully unfunny monologues”.

“It’s my way of letting my brain reset,” she says of the show, as well as reality TV such as Towie and I’m A Celeb. “It’s not taxing, it’s tolerable.”

“Not taxing and tolerable” are perhaps the words that best sum up the complex psychological reasons we continue to watch mediocre TV during the Golden Age of Television. Streaming services like Netflix are also designed to keep us watching, with episodes auto-playing one after the other (plus it's easier to find a show you've essentially already paid for on the Netflix homepage than go out and hunt for something more prestigious).

Although watching mediocre TV can feel like a waste of time, it does seem to have a psychological purpose. When we're stressed, busy, or tired, it can be exactly the entertainment we need. Nothing is more stressful, busy, or tiring than a commute – so I'll be watching Brooklyn 99 on the train home.

Amelia Tait is a technology and digital culture writer at the New Statesman.

This article first appeared in the 13 October 2008 issue of the New Statesman, The facade cracks